{ } GAS STATION/ C-STORE GOING-CONCERN VALUATION The Society of Chief Appraisers & Risk Management Association// Los Angeles, CA // October 2015 PRESENTED BY STEVE MORSE, FOUNDER & CHIEF APPRAISER 1
INTRODUCTION Stephen J. Morse, Founder and Chief Appraiser of Retail Petroleum Consultants, began his appraisal career as an intern, while attending Fresno State University. After graduating in 1993, he quickly ascended through the ranks to an appraiser 2003 role, giving him the opportunity to master the craft, while bringing his keen level of insight to a company that would be his home for several years. Wanting to expand upon both his valuation and geographic expertise, Stephen went on to work for several national firms, including Landauer (Atlanta, GA), PriceWaterhouseCoopers (Atlanta, GA), and American Appraisal Associates (AAA), where he built upon his knowledge of gas station and convenience store appraisals. During his time at AAA, Stephen created and 2014 managed the Petroleum Valuation Group based in Irvine CA, prior to realizing his own vision and forming Retail Petroleum Consultants (RPC) in 2003. Since its founding, Retail Petroleum Consultants has provided over 6,000 going- concern valuations and special use appraisals to hundreds of financial clients, oil companies, gas station operators, attorneys, and the like. Today the RPC team led by Mr. Morse continues to provide the highest quality service while maintaining strict ethical standards. The firm is currently expanding Nationwide, with coverage TODAY to all 50 states. 2
GAS STATION/C-STORE VALUATION Information Request List 1. Copy of any leases encumbering the subject, including any renewals, amendments and exhibits. These may include ground leases, QSR leases, service bay leases, etc. 2. Individual store contacts (to schedule inspections) 3. Detailed Profit and Loss statements for the past three years plus current year-to-date 4. Future sales projections and/or budget 5. Fuel Supply Contract, Volume Incentive Plans, Rebates, Forgivable Loans, or any related dealer-supplier agreements 6. Copy of current tax bills (both secured and unsecured) and details of any tax appeals in progress 7. Details and costs of any recent capital improvements completed or proposed (i.e.; roof repair, parking lot resurfacing, etc.). 8. Approximate year building(s) was constructed. Year of any addition or major renovation (i.e. new roof, exterior remodeling, asphalt paving, replacement of major mechanical systems) 9. Fueling Equipment Information- Pumps, Dispensers, USTs, etc., Date installed, manufacturer, type, size, etc. 10. Any previous appraisals or market studies 11. Historical Fuel sales volumes, past three years on an annual basis, and trailing 12 months or year to date, # of car washes annually 12. Construction details and costs - necessary for newly constructed or proposed projects, not required for older properties 13. Site and building plans, ALTA survey (if available) 14. Title report 15. List all ownership changes in the last three years, both real estate and/or business. 16. If the facility is being acquired, or is currently under contract, please include a copy of that contract which includes all terms and conditions of the transaction, listing package if property is for sale, sales information if property recently sold, land acquisition information if relevant (new construction) 17. Please identify any known environmental issues or remediation, responsible parties, etc. 18. A schedule of any furniture, fixtures, and equipment to be included. Please provide date acquired, cost, manufacturer and model number and book value if available. 3
GAS STATION/C-STORE VALUATION Appraising Gas Station & C-Stores The first step in undergoing a gas station going-concern appraisal is understanding the interest appraised. Fee Simple Lease Fee Leasehold The market data considered for each ownership interest is different. Its crucial the data considered matches the interest appraised. Appraiser’s competent with fee simple valuations may not be competent to appraise leasehold or leased fee interests. Note SBA’s current “Qualified Source” for 7a Loans: “If an applicant business operates from a Special Purpose Property (for example, car washes, hotels, gas stations with or without a convenience store, golf courses, medical facilities or bowling alleys), the going concern appraisal must be completed by a Certified General Real Property Appraiser with experience appraising the specific business/property type. Such appraisals must allocate separate values to the individual components of the transaction including land, building, equipment and intangible assets. Finally, the Certified General Appraiser must have completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report. ” 4
GAS STATION/C-STORE VALUATION Gas Station/ C-Store Ownership Fee Simple Ownership unencumbered by lease, often referred to as owner occupied. Operator owns all components of the going-concern including land, buildings, removable and permanently attached Machinery and Equipment (M & E), and any business and or intangibles as applicable. Historical Profit and Loss statements including fuel gallons sold are critical for a credible valuation. Lenders will typically underwrite real estate and a portion if not all permanently attached M & E. Business value as applicable may be underwritten separately. Leased Fee Gas station is leased arms-length with landlord receiving rental payments for land and buildings. Here we are appraising the landlord’s position. Fueling improvements are typically included but generally maintained by tenant. Tenant owned business and removable M & E items are excluded from the leased fee valuation. Tenant credit rating and lease terms are necessary for a credible valuation. Lenders generally underwrite leased real property assets including fueling improvements. Short lease terms, inadequate tenant cash flow, and poor tenant credit rating may impact valuations. Leasehold Also referred to as a business only valuation. Here we are appraising the tenant's position. Business cash flow and lease terms are necessary for a credible valuation. Landlord may be Major Oil Company or individual. Major Oil Companies must abide by PMPA (Petroleum Marketers Practices Act) whereby leases are renewed at market rates Lenders underwrite tenant’s into perpetuity with tenant having first right of refusal if landlord sells their assets. business cash flow and any leasehold real property assets. 5
GAS STATION/C-STORE VALUATION Fee Simple (Going-Concern Valuation) Going-Concern cash flow converted to value factoring gross profit by a GPM (Gross Profit Multiplier) or applying an OAR (Overall Capitalization Rate) to NOI (Net Operating Income). Average GPMs for modern branded urban located gas stations in California generally range between 3.00 and 5.00. Average OARs are generally between 8.00% and 12.00%. GPMs are at very high levels while overall rates remain low similar to trends observed in the NNN market. The Cost Approach is used to allocate going-concern assets by residual technique; if residual is positive business value is present, if negative no business value is realized and the subject likely suffers from functional and or external obsolescence. Gross Profit X GPM = $ Going-Concern Value NOI ÷ OAR = $ Going-Concern Value Going-Concern Value - Cost Approach = $ Business Value (Functional/External Obsolescence) 6
GAS STATION/C-STORE VALUATION Leased Fee (Real Estate Only Valuation) Annual income received from tenant (rent) less expenses is converted to value by dividing net income by an OAR. Long term triple net (NNN) leases of improved real estate to National credit rated tenants such as Chevron or Shell trade for the lowest risk support current OARs generally in the 4.00% to 6.00% range as these tenants will pay rent regardless of whether or not the service station cash flows. Overall rates appear to have bottomed out and will likely increase as interest rates rise in the coming years. Leases to individual dealers that are not credit rated have much greater risk and support higher OARs at 6.00% to 9.00% or more depending on the perceived tenants credit rating and spread between their cash flow and rental payments. Lease terms, environmental and maintenance responsibilities, removal of improvement(s) and or USTs (Underground Storage Tanks) at lease termination, branding, age and condition, etc. may effect OAR selection. Leased fee value is arrived at by dividing net annual rental income by the selected OAR, when tenant cash flow exceeds rental payments. Net Annual Rental Income ÷ OAR = $ Leased Fee Value (When Tenant Cash Flow > Rent) 7
Recommend
More recommend
